R&D Tax Credits and how we can help
Investing in research and development (R&D) can be expensive and risky. To incentivise innovation and help businesses offset some of those costs, the UK government offers R&D tax credits—a powerful form of tax relief. Despite their value, these credits can be complicated to claim, particularly for companies unfamiliar with the eligibility criteria and claim process.
What are R&D Tax Credits?
R&D tax credits are a government incentive designed to encourage companies to invest in innovation. Introduced in 2000 for small and medium-sized enterprises (SMEs), and later expanded to large companies, R&D tax credits allow businesses to reduce their tax bill or receive a cash refund based on a percentage of their R&D expenditure.
The objective is simple: fuel technological advancement, boost economic growth, and ensure the UK remains competitive in a global economy.
There are two primary R&D tax credit schemes in the UK:
- The SME R&D Relief Scheme
- The Research and Development Expenditure Credit (RDEC) Scheme for large companies
R&D Tax Credits at a glance:
R&D Tax Credits are designed to encourage UK companies to invest in innovation and scientific or technological advancement by offering generous tax relief on eligible R&D activities and costs.
How do R&D Tax Credits work?
SME R&D Relief Scheme
For most companies, the SME scheme is the most relevant. To qualify as an SME under the scheme, your business must:
- Have fewer than 500 employees
- Have a turnover of less than €100 million or a balance sheet total under €86 million
Under this scheme, SMEs can:
- Deduct an extra 86% of their qualifying R&D costs from their yearly profit (in addition to the normal 100% deduction)
- Or, if loss-making, they can claim a cash credit worth 10% of the surrenderable loss
RDEC Scheme
Large companies—or SMEs that have been subcontracted to perform R&D work for a large company—must use the RDEC scheme. This offers a 13% taxable credit on qualifying R&D expenditure, which results in a net benefit of approximately 10.53% after corporation tax.
Unlike the SME scheme, RDEC is shown “above the line” in company accounts, making it visible as income, which can be more attractive to investors and shareholders.
Qualification conditions
Who can claim R&D tax credits?
The good news is that R&D tax relief isn’t limited to scientists in white coats or high-tech labs. A wide range of industries and sectors carry out qualifying R&D activities—even if they don’t realize it.
You can claim R&D tax credits if your company:
- Is subject to UK Corporation Tax
- Has spent money on R&D projects that seek to resolve scientific or technological uncertainty
- Has developed new or improved products, processes, services, or internal systems
- Can demonstrate that it attempted to overcome uncertainties—not just in the final product, but throughout the development process
- Recent changes in the legislation means that only R&D work undertaken in the UK can be included in your R&D tax credit claim (from all periods starting from 1 April 2024) if there aren’t particular circumstances that some of your R&D work has to be undertaken outside of the UK.
Eligible sectors include:
- Software development and IT
- Manufacturing and engineering
- Food and beverage
- Construction and architecture
- Pharmaceuticals and biotechnology
- Financial technology (FinTech)
- Green technologies and renewable energy
Even if a project failed, it may still qualify—failure often shows you were working at the edge of knowledge, a key criterion in determining eligibility.
What counts as Qualifying R&D Expenditure?
To make a successful claim, your business needs to identify eligible costs. These include:
Staffing costs
- Salaries, wages, National Insurance contributions, and pension contributions for employees directly involved in R&D
- A proportion of supervisory or managerial time spent on R&D
Subcontractor costs
- For SMEs: 65% of payments to subcontractors may be claimed (subject to restrictions)
- For RDEC: only payments to certain individuals or partnerships qualify
Consumables
- Materials and utilities used in the R&D process, such as chemicals, fuel, and electricity
Software
- Software licenses used directly for R&D purposes. Since a few years ago you can also include hosting costs.
Prototypes
- Costs of building prototypes that are not sold or used for production
Clinical trial volunteers (in life sciences)
Capital expenditure (e.g., buying land or buildings) is generally not eligible, although some capital allowances may be available through the RDA (Research & Development Allowance).
Metric’s R&D Tax Credit process: step-by-step
Kick-off meeting
The R&D tax credit claim process starts with a kick off meeting. At this initial stage we will describe the R&D process and what the R&D tax credit will mean for your business.
We will check that the Company and its R&D projects are eligible for the R&D tax credit scheme and check what scheme will apply for your circumstances.
Engagement
We decide the scope of the work and will provide a quote for your R&D tax credit claim. Metric’s typically work on a fixed fee basis. If you accept the quote we will issue an engagement letter.
R&D technical narrative template and eligible costs
Metric will share our R&D technical document template with you and if we have access to your financials, we will provide extracts from your bookkeeping of any potential R&D expenses together with any payroll costs (inclusive of Employer’s NI and Employer’s pension contributions split per individual). If we aren’t involved in your accounts or bookkeeping work, that is not a problem, we will share with you a list of financial information that we will need you to provide us with.
We will leave you to review and establish internally what costs you have incurred for your R&D work. Ideally, you use some time reporting tool which will help you identify how much of your company’s salary costs that can be included in the claim.
At this stage it is common to have a second meeting where we discuss the R&D technical document and the identified costs. Typically, the CTO completes the document together with the CFO, but Metric can of course support in writing the documents.
Draft of Narrative and identifying of R&D costs
You will provide the first draft of the R&D tax credit document for us to review together with the costs that you have identified should be included in your R&D tax credit claim. We will review the narrative and particular the areas around technology uncertainties, boundaries and competent professionals for the projects you have identified. We will also review your suggested costs and ensure that they are split between the different R&D projects, and we will also ensure that the costing is in line with the narrative.
Finalisation of the claim
When we are happy with the total R&D tax credit claim and the narrative, we will produce a tax return and its supplementary pages and if we prepare your year-end financial accounts, we will reflect the R&D tax credit claim in your year-accounts. As part of this stage, we will prepare the Additional Information Form (AIF) that is submitted to HMRC. Ahead of any submissions we will always share the documentation for your review and approval.
Submission and HMRC queries
It normally takes 4-6 weeks before you receive a potential tax refund. If HMRC has any follow up questions Metric would deal with these and any additional work required to respond to HMRC would be covered by our tax assistance insurance.
Common pitfalls and mistakes in R&D claims
Despite the generous reliefs available, many businesses underclaim or make avoidable errors. Common mistakes include:
- Misidentifying what qualifies as R&D
- Omitting eligible projects
- Poor or lack of documentation which causes issues in case of a HMRC investigation
- Incorrect allocation of staff costs or not including all staff costs in the calculation
- Assuming only successful projects qualify
- Using ineligible subcontractors
- Submitting vague or generic technical narratives
- Use of the incorrect R&D tax credit scheme
A poorly prepared claim can result in delays, reduced claims, or even an HMRC enquiry—something no business wants.
Why choose Metric Accountants?
Here’s why we’re the right partner to help you claim R&D tax credits successfully:
1. Specialist R&D expertise
Metric has submitted hundreds of tax credits claims over the years four our innovative companies. As a chartered accountant we are a professional advisor with a deep knowledge of the tax rules around the R&D tax credit. We understand the different R&D tax credit schemes and can optimise your claim, without overreaching, by ensuring that you have included all costs that you can include.
2. Proven track record
Our firm has a near-perfect success rate with HMRC. We’ve helped our companies recover millions in tax relief. Using a qualified R&D tax credit provider who are used to work with HMRC and knows what HMRC are looking for reduces the risk of a HMRC investigation. The R&D tax credit industry has seen many unqualified advisors submitting bogus claims and lately HMRC has got up their eyes for these firms.
3. Audit-ready documentation
We prepare fully compliant technical and financial documentation tailored to HMRC’s latest expectations. Should HMRC raise a query, we handle the entire response process on your behalf.
4. End-to-End service
From eligibility assessment to submission and post-claim support, we manage all the process in-house. Our approach is collaborative, clear, and client-focused, ensuring minimum disruption and maximum confidence to our clients.
Metric predominantly prepare R&D tax credit claims for clients for which we are also preparing their year-accounts and other services for. The benefit of using a firm who already knows your business and easily can access your financials is that you don’t need to be as involved as they can obtain any necessary information for you.
5. Transparent fees
We operate on a fixed-fee model, meaning there are no hidden costs. We will include in our fee a tax investigation insurance that will cover for any additional accountancy fees in case of an investigation.
6. Ongoing advisory services
We can go beyond one-off claims. Our team can help integrate R&D incentives into your long-term business strategy—whether that means preparing for future funding rounds, scaling your R&D team, or aligning your development process with claim requirements.
Client testimonials
Lookimedia
“We’ve been working with Metric for many years now and through that time have received a great many suggestions, recommendations and counselling that have brought multiple economic benefits to our business. They are true team players.”
Pactio
“Metric has been an incredible partner – supporting us across a wide range of workstreams, from daily bookkeeping to transfer pricing to R&D. Having one trusted partner for everything makes our lives so much simpler and our processes far more efficient. We couldn’t recommend them more highly!”
